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Sun Life (SLF) Up 10.8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Sun Life (SLF). Shares have added about 10.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sun Life due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Sun Life Financial Q3 Earnings Top Estimates, Rise Y/Y

Sun Life Financial Inc. delivered third-quarter 2022 underlying net income of $1.24 per share, beating the Zacks Consensus Estimate by 15.9%. The bottom line increased 1.6% year over year. The underlying net income of $727.4 million (C$949 million) was down 4.9% year over year.

Insurance sales increased 35.7% year over year to $722.8 million (C$943 million), driven by increased sales in Canada, Asia and the United States.

Wealth sales were $33 billion (C$43.1 billion) in the quarter under review. The value of new business decreased 20.2% to $196.23 million (C$256 million).

Segment Results

SLF Canada’s underlying net income decreased 6.5% year over year to $229.9 million (C$300 million).

SLF U.S.’ underlying net income was $165.6 million (C$216 million), up 77.5% from the prior-year quarter. The increase was driven by growth across all businesses, the contribution from the DentaQuest acquisition and favorable experience-related items.  

SLF Asset Management’s underlying net income of $226.1 million (C$295 million) declined 26.3% year over year. The decrease was due to lower results in MFS Investment Management, reflecting declines in global equity markets and in SLC Management due to investment gains in the prior year and continued investments in the businesses.

SLF Asia reported an underlying net income of $134.14 million (C$175 million), which rose 9.9% year over year. The increase was driven by improved mortality, reflecting lower COVID-19-related claims, and higher investment gains and contributions from the joint ventures. It was partially offset by lower fee-based income due to equity market declines.

Financial Update

Global assets under management were $931.22 billion (C$1,275 billion), down 14.6% year over year. Sun Life Assurance’s Minimum Continuing Capital and Surplus Requirements (LICAT) ratio was 123% as of Sep 30, 2022, down 100 basis points (bps) year over year.

The LICAT ratio for Sun Life (including cash and other liquid assets) was 129%, down 1400 bps year over year. Sun Life’s return on equity was 7.6% in the third quarter, down 1000 bps year over year. The underlying return on equity of 15.5% contracted 10 basis points year over year. The leverage ratio of 26.4% deteriorated 420 bps year over year.

Dividend Update

On Nov 2, the company’s board of directors approved a dividend hike of 3% to 72 cents per share. The amount will be paid out on Dec 30, 2022 to shareholders of record at the close of business on Nov 23.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Sun Life has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Sun Life has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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